CIBIL does justice to the banking system by reducing the customer's Credit Score. CRISIL score is a number that ranges between 300 and 900. Anything above 700 is considered a good score. Anything less than 700 means the customer cannot hope to raise a new loan or get a new credit card from the banking system. In short, in order to keep their Credit Score above 700, bank customers must pay back all of their loan / credit dues in time. If there are overdues, defaults, or negotiated settlements, the score goes down. When all dues are paid back in time, CIBIL Status reported by the bank is "Blank". That is good status except that even a "Blank" status coupled with a reporting of overdues will reduce the score to some extent. The best CIBIL Status to have is a "Blank" status with zero overdues. Bad CIBIL Status will be a "Written Off" or "Settled" instead of a "Blank".
Precautions to take before doing a settlement
Just know that whenever your bank offers you a settlement of dues, ask the bank to give you in writing the status they will report to CIBIL after the settlement. In case the bank is taking a "haircut", they will not give you a "Blank" CIBIL Status. You must ask the bank for two settlement quotes - one for "Blank" status and one for other than "Blank" status. Do your best. If you cannot pay in full, all is still not lost. There are ways to recover your Credit Score later.
How to recover from a low CIBIL Score
There are two possibilities here. One, your bank might have sold its bad debts portfolio, that included your account, to an "Investor". Usually such a sale happens at a heavy discount. But whenever a customer approaches the "Investor" to repay his debt to improve his Credit Score, the "Investor" asks for all the past dues, overdues, interest accrued after the settlement, and whatever else he can ask for. Its pure blackmail. No concessions are given because the "Investor" bought the portfolio in the first place to make money. I have seen examples of a Rs. 10,000 original due becoming Rs. 3.50 lakh when the customer approached the "Investor" for a final settlement. The second possibility is that your bad debt is still in the books of your bank. The bank too will act almost like an "Investor" except that there will be a better chance of making a humanitarian settlement. After you pay whatever the "Investor" or the bank want, they will report a "Blank" status to CIBIL and your Credit Score will improve.
God, I miss the days when there was no CIBIL.